You are here

Need for effective governance of public firms

Jun 14,2017 - Last updated at Jun 14,2017

Renewed pressure has been arising recently about the financial performance of several Jordanian public firms, including, but not limited, to the phosphate company, Royal Jordanian, and other energy-focused companies.

The financial indicators of these firms have not been improving in the recent years, and in the case of RJ, the situation has even worsened. 

The average Jordanian, as well as non-expert activists, seek answers to important questions such as: why has the financial performance of these corporations worsened recently? What are the factors that led to such drop? 

Are there external factors, internal factors, or both that caused the deteriorating financial performance?  How do these companies make their decisions, including those of a strategic nature (long-term oriented business strategies)?  What does the governance mechanism look like at those companies? 

Who selects the board of directors? How are those directors selected?

And finally, what are the assurances that those directors are performing their duties effectively? 

In other words, do our public (governmental and semi-governmental) companies have effective governance systems in place? 

Regulators, shareholders and stakeholders everywhere have intensified pressure in recent years to have the boards of directors play greater role in monitoring corporation managers’ performance, limiting potential opportunistic acts and minimising the likelihood of any misconduct on the part of CEOs.

To do so, they have sought to strengthen governance systems and assure and enhance the board responsibilities.

The board-level oversight is particularly important in firms that have a history of weak performance, dropping return on investments (ROI) and those that are frequently negatively featured in the public sphere via the media. 

Transparency is an important part that has been missing in regard to the questions mentioned above, questions to which there have been no clear answers that would explain the stumbling financial health of those corporations.

The government should know a basic rule in business, especially when addressing problems that concern the Jordanian community: there is no space for emotions, for courtesy at the expense of the national interest or for personal favours.  Yet, these very firms that have been worrying Jordanians at large are still unable to develop a turnaround strategy because of the lack of an effective and transparent corporate governance system.

They must understand that managing public firms is not a personal business that bears taking risks for the sake of exchanging favours;, it is the country’s wealth or part of our very limited sources of income that is at stake. 

Those in top government posts, and those who make the decisions and recommendations, need to understand these few facts so they can begin a true process of reform for those stumbling companies. 

We, in Jordan, have highly talented and energetic people who aim to serve, to work hard and to achieve.

We have a unique human capital that has all the necessary tools, knowledge, experience and abilities to properly diagnose the shortcomings and root causes of these companies’ financial problems, and that can come up with solutions that can adequately address the unacceptable current conditions of these firms.

However, in order for those individuals to be seen or noticed, and then given the opportunity to perform whatever tasks they are better qualified for, we first need a properly functioning top management teams, which indeed requires an effective governance system in which the boards of directors are elected or selected transparently and on the basis of competence, and nothing else, very strict internal governance regulations that can control the performance of any manager, regardless of his/her background or identity, and a purely economic-driven decision-making strategy.

That can only be done through effective and transparent governance, where every interested Jordanian party can observe, monitor and understand what is going on in these corporations, which leads to improved functionality of these corporations at all levels.

I strongly believe that our country needs more from us, and deserves more. 

Our leader is working tirelessly and doing his very best to serve the nation, so why do we not follow in his footsteps and do our best to serve our great Jordanian people and our beloved country?

 

 

The writer, doctor of philosophy in strategy and international business at the College of Business-University of Texas, contributed this article to The Jordan Times.

up
66 users have voted.


Newsletter

Get top stories and blog posts emailed to you each day.

PDF